South Korea's July inflation cools to 2.8%, returning to 2% range

South Korea's consumer price inflation eased to 2.8% in July, marking a return to the 2% range after exceeding 3% for two consecutive months. This moderation is largely attributed to a decrease in international oil prices, which helped slow the rate of increase for petroleum products.

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The reduction in the rate of increase in petroleum product prices due to the impact of international oil prices and exchange rates, and the reduction of maximum prices, has led to July prices re-entering the 2% range.

The National Data Office reported that while petroleum product prices rose 15.5% year-on-year, this was a significant reduction from the 24.7% increase seen in June. However, the "chipflation" phenomenon continued to impact electronics, with prices for computers jumping 25.1% and portable multimedia devices increasing by 22.5%.

Food prices showed a stabilizing trend, with agricultural, livestock, and fishery product prices rising only 0.9% compared to 3.2% in June. This was partly due to a 4.2% decrease in vegetable prices. Nevertheless, prices for certain items like domestic beef (5.7%), rice (7.9%), imported beef (8.7%), eggs (7.5%), and mackerel (7.0%) continued to rise significantly.

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Despite upward factors such as supply instability of agricultural and livestock products due to worsening weather conditions, it is positive that July prices have re-entered the 2% range.

Core inflation, which excludes volatile food and energy prices, showed a slight upward trend. The index excluding food and energy rose 2.6% year-on-year, a marginal increase from the previous two months. The index excluding agricultural products and petroleum products also saw a slight uptick to 2.5%. Despite the overall slowdown, officials noted potential upward pressures in August due to base effects from a large discount offered by a mobile carrier last year and the ongoing volatility in international oil prices.

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The Middle East war has not been resolved, and there is volatility in international oil prices, and in the second half of the year, we must also consider the possibility of processed food prices increasing due to petroleum product price hikes.